More Articles

The Dispatch E-Edition

All current subscribers have full access to Digital D, which includes the E-Edition and
unlimited premium content on Dispatch.com, BuckeyeXtra.com, BlueJacketsXtra.com and
DispatchPolitics.com.
Subscribe
today!

Which is better: To retire without a mortgage, or keep the mortgage and retire with a bigger
nest egg?

More Americans approaching retirement face what some describe as worrisome levels of debt,
especially mortgage and credit-card debt.

Consider: More than half (55 percent) of Americans ages 55 to 64 carry a home mortgage, and
about the same fraction (50 percent) have credit-card debt, according to a paper that was presented
at the 15th-annual Joint Meeting of the Retirement Research Consortium this month in
Washington.

What’s more, that debt isn’t going away after retirement. Among people ages 65 to 74, almost
half had mortgages or other loans on their primary residences, and more than a third held
credit-card debt, according to the paper, “Debt and Debt Management among Older Adults.”

And that debt can be a problem, especially for those who are less financially literate,
according to the authors of the paper, Annamaria Lusardi, a professor at the George Washington
School of Business, and Olivia Mitchell, a professor at the Wharton School at the University of
Pennsylvania.

Such debt can be hard to pay off during retirement, especially in the absence of earned income.
Such debt can lead to bankruptcy, according to Lusardi, who, along with Mitchell, is the co-author
of
Financial Literacy: Implications for Retirement Security and the Financial
Marketplace.

What’s the better tactic? To aggressively pay down one’s mortgage before retirement and stop, or
perhaps reduce, one’s savings for retirement? To keep saving for retirement and retire with
mortgage debt? Or should you split the difference: save a bit less for retirement and pay down one’s
mortgage a bit more aggressively?

As with most things having to do with money, the answer depends on your situation. “My answer
would be that it depends on the facts and circumstances,” Mitchell said.

Not surprisingly, many agree that it’s impossible to decide, without crunching the numbers,
whether it’s wise to pay down your mortgage before retiring, at the expense of saving less for
retirement. “I do not think there is a general advice to give without knowing more about personal
circumstances,” Lusardi said.

Kathleen Mealey, a financial counselor with Cabot Money Management, is in the same camp. To
begin to answer the question, she said, you need to assess how ready you are for retirement.

Others share that point of view. “The question is not a simple one to answer, as there are a
number of variables that would come into play,” said Mike Kenney, a consultant with Nationwide
Financial.

Among many factors, those variables include: • Current income. • Current savings. • Current tax
rates. • Your Schedule A itemization before and during retirement. • Whether you have access to a
health-savings account. • Your retirement income needs with and without a mortgage. • Your mortgage
balance. • The number of years remaining on your mortgage. • Interest rates and opportunities to
refinance.

Earlier this year, a survey showed that most people think paying off their mortgage was among
the smartest financial decisions they ever made — along with starting to save when they were
young.

The tax consequences of pursuing one tactic or the other also must be considered. “There are tax
advantages to pension contributions, and interest payments on mortgages are tax-deductible, so one
has to compare these advantages,” Lusardi said.

Mealey agreed, saying that contributing to a 401(k) and deducting interest payments from a
mortgage could be beneficial, especially if it puts you in a lower tax bracket. “If the answer will
be a combination of both 401(k) contributions and paying off mortgage, work at keeping tax brackets
low,” Mealey said.

A word of warning: You are likely to lose much of the benefits of deducting mortgage-interest
payments the closer you are to paying it off in full. Also, consider this: You do get a tax
deduction with your 401(k) contribution. But the deduction only defers your taxes, said Michael
Kitces, publisher of the blog Nerd’s Eye View, a partner and director of research for Pinnacle
Advisory Group and a RetireMentor at MarketWatch.

Mealey and others also suggested that you pursue the tactic that offers the highest return on
your investment. “What is the mortgage-interest rate and length of time remaining?” she asked. “
Compare this with the 401(k) investment options. If the long-term rate of return on the 401(k) plan
will be higher than the mortgage, and there is a comfort level with the risk involved, it may not
be advantageous to pay off the mortgage.”